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Simply put, trading is the buying and selling of assets, such as stocks, bonds, currencies, or commodities like grain or livestock.
To give you an idea of how big trading is, the market capitalisation of all stocks trading in the London Stock Exchange (LSE) in September 2022 reached £3.58 trillion ($4.16 trillion).
And that’s just one stock exchange. In Europe, five major exchanges have over one trillion euros in market capitalisation, and this does not include trading in the U.S. markets. Overall, there is potential profit to gain from trading.
What is trading? How does it work? Are there any tips for beginners who want to get into day trading? What are the challenges of day trading, trading stocks and forex?
This article explains what trading is for first-time traders and the various terminologies they must learn.
This article also discusses some tips to help beginner traders become successful in day trading and the advantages and challenges of trading that every new trader should know.
Taurex provides traders with competitive spreads and powerhouse platforms to help you take charge of your trading. We have over 1,500 trading instruments across various asset classes, such as shares, commodities, indices, metals, and forex.
In Simple Terms, What Is Trading?
When accessing financial markets, you have two options: buying and owning assets (traditional investing) or speculating on their price movements without taking ownership (trading).
Basically, trading means predicting whether a financial asset’s price will rise or fall.
4 Key Trading Terms
Before you start trading, you should understand the following key terms, as you will likely encounter them regularly:
- Spread betting: This method lets you trade on an underlying asset’s price movements by betting an amount of money for each movement point in that asset’s price.
- Going long or short: Going long, also called being bullish, means predicting that an asset’s price will rise. Meanwhile, going short, or being bearish, implies that you think the asset’s price will fall.
- Margin trading: This method is a leveraged trade wherein you open a position for less than your trade’s total value.
So, if you buy 20 shares worth $50 each, your position’s value is $1,000. However, placing a 20% margin deposit allows you to open a trade with only $200.
- Risk: Risks are factors that increase the possibility of monetary loss. You must understand the inherent risks in trading, especially in margin trading, wherein you can lose more than your initial deposit.
Why Use a Derivative?
Trading with derivatives, like spread bets, lets you go long or short, allowing you to profit whether the price rises or falls.
For example, if you predict the price of an asset will fall in the next few days, you can go short and sell that security at its current price. If the price does fall, you buy the asset.
The difference between your buy and sell positions is your profit.
On the other hand, owning commodities like gold lets you profit only when the material’s price goes up.
How to Make Your First Trade
Once you’ve learned the trading basics and have familiarised yourself with your chosen trading platform, do the following to make your first trade:
- Sign up with your broker of choice and fund your live account.
- Choose an asset to trade after analysing the market.
- Choose “buy” if you think the asset’s market price will rise or “sell” if you believe it’ll go down.
- Pick the deal size, also called bet size in spread betting.
- Monitor your position’s movement.
What Is Day Trading?
Day trading is buying or selling financial instruments throughout the day. Unlike long-term trading, day trading allows traders to buy or sell monetary contracts several times in a trading day.
A financial instrument is something that has a value that you can exchange for cash, debt, or a share in a company.
Experienced day traders analyse the shifts in the worth of these financial instruments and profit from those changes that happen during the day.
Day trading can be overwhelming and risky, especially for new traders. However, if the trader knows what they’re doing and uses the right strategies, day trading can be very profitable.
Remember the following guidelines on your day trading journey:
- Day trading can be profitable in the long term as long as you do your research.
- When deciding what stocks to buy, look into their liquidity, volatility, and volume.
- Tools for day trading to help identify buying points include trendlines, triangles, volume, and candlestick chart patterns.
- Day traders must be focused, diligent, and objective. They should not let emotions get in the way of their work.
How Does Day Trading Work?
Day trading is when you speculate over financial investments’ movements that happen within 24 hours.
Speculation is trading or investing in financial instruments, hoping for profit but with a risk of loss.
Due to day traders having a short time frame to work on, they usually have different profit goals than long-term investors. For example, day trading strategies rely on short-term gains.
Additionally, day traders must be willing to capitalise on their small gains during the day because tomorrow will be a different trading scenario.
How to Become a Day Trader
Day trading involves making several quick transactions in one day, so ensure you have a fast and stable internet connection before trading.
Once you have secured these essentials, follow the steps below. Then you’re on your way to becoming a successful day trader:
Step 1: Look at Trading Platforms
There are several online trading platforms, each with unique features and advantages.
Some of these platforms specialise in day trading, so you can review them if you want to engage in this trading type.
Step 2: Study
People often say that knowledge is power. So, take your time to learn the basics and different trading strategies to help you become well-versed in day trading.
Information you should study includes knowing speculation patterns and the terminologies used in the trading world.
Step 3: Open a Demo Account
Before trading with real money, you should open a demo trading account. Doing this lets you practice what strategies work for you and develop a sound risk management plan.
Step 4: Invest Some Funds
If you want to rake in some profits, you should not stay in a demo account forever.
Put those lessons and practice trades to good use by investing real money. After all, a day trader must have sufficient funds to start trading and earning cash.
Consider starting with as little as $100 to ease your way into the trading experience. You can slowly increase your funds as you become more knowledgeable and confident with your trades.
Day Trading Tips for Beginners
The following day trading strategies can help beginners become better and profit more on day trading:
Knowledge Is Power
Aside from understanding day trading procedures, it will help if you keep yourself updated with the latest news and events affecting the stock market.
Information sources you can look into include company news, interest rate changes, and other financial and economic news.
Doing so lets you work out which companies will perform better or worse so you can make a list of stocks you can consider trading.
Set Aside Funds
Suppose you are confident that you have the knowledge and funds to start trading. Assess how much capital you want to invest in each trade and commit to that amount.
Many successful day traders commit less than 1% to 2% of their funds for each trade. Suppose your trading account has a fund of $50,000, and you decide to risk only 1% of this amount. If things do not go your way, your maximum loss per trade will only be $500 ($50,000 x 1%).
Set Aside Time
Day trading requires you to commit your time and attention like a businessman dedicates most of their time to their company. You must observe the markets and spot opportunities that can appear anytime within trading hours.
If you do not have enough time to spare for such activities, day trading may not suit you, and you should consider other trading methods.
If you are day trading for the first time, focus on one or two stocks at most during a session. Directing attention to a few stocks can help make tracking and finding trading opportunities easier.
Avoid Penny Stocks
Not all stocks are good trading choices, especially for beginners. Some stocks are illiquid (not readily convertible to cash), and your chances of achieving high returns are often extremely low.
Many stocks trading below $5 per share often get delisted from major stock exchanges, resulting in these stocks becoming tradable over the counter.
If you are a beginner, consider staying away from these stocks unless you have done your research.
Time Those Trades
Many traders and investors place orders right before the markets open in the morning. These orders execute immediately after trading starts, often contributing to price volatility.
You may recognise these opening patterns when you become an experienced trader, and you can time your orders to earn a profit.
If you are new to trading, you should observe the market for the first 15 to 20 minutes before making your first trade of the day.
Cut Losses With Limit Orders
Consider placing a market order if you prefer going in or out of the market without caring about a specific price. This order executes at the best price available without any price guarantee.
Meanwhile, a limit order provides a price guarantee but not the execution. These orders can help you trade with more confidence and precision because you only set the price at which your order executes.
Limit orders can also help cut your loss on reversals. However, if the market doesn’t hit your price, your order won’t fill up, and you’ll maintain your position.
Be Realistic About Profits
Your strategy of choice doesn’t have to succeed all the time for you to turn a profit. Many successful traders profit from only 50% to 60% of their trades.
These traders often succeed because they make more on their winning deals than they lose on their losing trades.
Therefore, limit each trade’s financial risk to a specific percentage of your account so you do not lose more than what you can afford.
There are days when trades do not go your way, and the stock market can test your patience. In these cases, making decisions using logic, not emotions, is imperative.
As a day trader, you must learn to keep your feelings, including hope, greed, and fear, in check.
Stick to the Plan
Due to the high volume of daily trades, you may think day trading requires you to think and act fast.
However, such behaviour isn’t always the case for successful day traders.
Why? Because these traders stick to a trading strategy and do not let emotions get the best of them. Doing so can cause them to abandon their plans while trying to chase profits.
What Makes Day Trading Challenging?
Day trading takes a lot of knowledge and practice to get right, and several factors can make this activity challenging:
- You’re trading against other professional traders: Most of these individuals have connections and access to the best technologies in the industry that can increase their chances of earning higher profits.
- The government takes a cut from your profits: Regardless of whether you have small or large short-term gains, you still have to pay taxes.
- Beginner day traders may be prone to psychological and emotional biases affecting the trade. When you lose funds on a trade, you can quickly become emotionally affected, especially when your money is on the line.
Day Trading Charts and Patterns
Day traders often use the following tools to help them determine suitable buying points:
- Candlestick chart patterns
- Technical analyses like triangles and trendlines
How to Limit Losses When Day Trading
Not every trade you make is successful and can earn you a profit. There are days when you have to accept a loss.
Fortunately, there are ways that you can limit losses in day trading, and these tips include the following:
Placing a stop-loss order helps limit your losses on a position in a traded security.
If a stock price moves at an average of $0.10 a minute, you can place a stop-loss order that’s $0.30 away from your position to provide the price with enough space to fluctuate.
This way, you can immediately cut your losses if the price moves below your stop-loss position.
Set a Financial Loss Limit
When setting a maximum loss per day, ensure the amount is something you can afford.
Once you hit this limit, exit the trade and take the rest of the day off. Tomorrow is another opportunity to trade, so remember to stick to your strategy.
Test Your Strategy
After determining how to place your trades and where to set your stop-loss limits, you can test whether your chosen strategy will fit your trading style and risk limit.
If your technique still puts your position at high risk, consider modifying your plan to minimise this risk further.
Once you get the right strategy that suits your risk limit, analyse the historical charts to find potential entry points. Check whether these points will hit your stop-loss limits or price targets.
Afterwards, start making paper trades (simulated or practice trades) about 50 to 100 times until you get the hang of it or until the results meet your expectations.
If you believe your strategy works, proceed to real-time trading with a demo account.
Suppose you earn a profit over two or more months in this simulated trading environment. You can proceed with day trading using real money.
Meanwhile, if your strategy is not profitable, revise your plan again and start over.
Basic Day Trading Techniques
Aside from setting loss limits, other essential techniques for day trading include:
- Contrarian investing: This method assumes a price increase will reverse and fall. The contrarian buys while prices are falling or short sells when prices rise, expecting the trend to reverse.
- Following the trend: This technique involves buying when prices rise or short-selling when prices fall. The assumption is that steadily rising or falling prices will continue for some time.
- Scalping: This method lets speculators take advantage of small price gaps in the bid-ask (buy-sell) spread to earn a profit. Scalping can be tricky as this technique involves entering and exiting a position within minutes or seconds.
- Trading the news: This strategy involves buying shares when there is good news surrounding that share or short selling when there is bad news. The volatility this strategy produces can lead to high profits or losses.
After mastering these techniques, you can develop your trading style and use various strategies to help you achieve your profit goals.
Benefits and Challenges of Day Trading
Day trading can be profitable if you learn about financial instruments and recognise the best trading opportunities. Top-performing day traders can make up to $150,000 annually.
How much money you prefer to start with is up to you and will affect your profit margin.
So, if you start with $10,000, your potential profit is likely less than a trader who starts with $100,000.
As a day trader, you are basically your boss, so you do not need to bother about external pressures like deadlines or quotas.
You also do not have to worry about the long-term impact of other international markets because day traders open a new page daily.
Despite these benefits, day trading success pairs with unique challenges, and this practice isn’t a risk-averse activity.
For instance, day trading can be stressful, especially when your predictions don’t turn out as expected and you experience losses.
Keeping up with laws and regulations can also be challenging since they often vary by state, country, and market.
Therefore, before jumping in with a significant amount of starting funds, you should familiarise yourself with the relevant financial regulations.
Becoming a Successful Day Trader
Day trading is about speculating in various financial instruments, so you need many skills to turn speculation into real profit.
To be a successful trader, you must be patient and disciplined with your investments. Market prices can shift a lot throughout the day, and traders must be able to wait and observe these changes without making rash decisions.
Share or stock prices can change significantly within 24 hours, so being observant is an essential skill to have.
Adaptability, or the ability to adjust to changing conditions, is another essential skill a day trader must have.
A successful day trader should also acknowledge that not all financial instruments will always bring success and must accept some degree of failure.
Despite the losses, day traders shouldn’t get discouraged by investments that don’t succeed. Tomorrow is another day for trade, and there are more opportunities for success around the corner.
Considerations When Choosing a Day Trading Broker
There are numerous trading brokers to choose from. However, the right one depends on your experience and the financial investment you’re willing to start.
Another consideration is the trading broker’s regulations. Experts recommend sticking to tier-1 regulated brokers because these institutions place the trading platform and client under a global financial legislator’s supervision.
Day trading beginners can also choose brokers with excellent customer support, low commission fees, and essential analysis tools. Beginners can also look into platforms with a large amount of educational material.
If you’re an experienced day trader, brokers with higher fees but more comprehensive financial margin practices can better suit your requirements.
What Is Stock Trading and Investing?
You can trade or invest in shares or stocks when you want to speculate and profit from a publicly traded company.
Trading and investing in shares means using a trading platform to speculate on a public company’s share price to see whether it will rise or fall.
When trading shares, you are not actually a shareholder. Therefore, you do not own the shares and will not receive dividends from them.
If you want to own shares, you must invest in them, meaning you must purchase a stake in the company.
Unlike trading, investing involves paying the total share price to own a specific number of shares.
How do shares benefit you? Becoming a shareholder entitles you to dividends and voting rights in company decisions.
How Does Stock Trading Work?
Anyone can participate in stock trading as long as they have access to an electronic trading platform.
Trading and investing are no longer exclusive to a few privileged individuals. You can become a stock trader if you have a stable internet or Wi-Fi connection and a reliable device, like a laptop or smartphone.
Stock trading today no longer requires you to place trades within a physical marketplace. Online stockbrokers exist so you can conduct trading in the comfort of your home.
Despite this convenience, stockbrokers still use the same markets in the stock exchange to value the shares being traded. Companies wanting to trade their shares publicly list their stocks in these exchange markets.
Supply and demand primarily drive stock trading activities. The more traders buy a listed share and then sell it later, the higher its price will become.
Aside from supply and demand, other factors determining stock prices include financial news featuring a corporation’s stock. These updates can drive investors and stockbrokers toward or away from that stock.
Are There Different Ways to Invest in Stocks?
How much you are willing to invest depends on your stock market knowledge and your income.
If you can cover those two areas, you’ll find that the stock market has numerous potential investments that aren’t limited to a share in a corporation’s ownership.
Other instruments stockbrokers can invest in include bonds, company debts, properties, and funds traded with other corporations.
With numerous options, you may feel apprehensive about what stocks to approach, especially if you are new to stock trading.
However, you will become a more capable trader or investor with enough time to learn and understand this activity.
How Much Do You Have to Invest Across Each Stock?
Compute your earnings and determine how much you are willing to lose. While this idea may not sound encouraging, it is essential so that you do not risk more than your means.
If you are a beginner trader, you may want to limit your investment to two or three stocks to keep your portfolio manageable. So, if you have $3,000, consider investing in three stocks at $1,000 each.
How Much Time Should You Invest in the Stock Market?
The time you spend studying the charts and patterns being broadcast over the stock exchange markets is as significant as the money you invest in stocks.
If you see this activity as a hobby, you can spend a few hours per week studying the stock market and making investments.
However, you can also be the type of stockbroker who spends a full working day watching stocks shift in value. Overall, your stock market experience will determine how much time you want to invest.
What Do You Want From Stocks?
Some stocks take longer than others to increase in value, so your approach to trading will help determine what securities you want to invest in.
You can consider day trading if you’re looking for moderately fast-paced trading. Day-traded stocks get priced and exchanged during the day, so you only have a fixed time to invest in the available assets.
Do you prefer trading in a rush? You can try scalping, a type of trading done over a few minutes or several seconds.
Scalping can be riskier than day trading due to its extremely short time frame. However, traders who get a thrill from rushed transactions can use this method.
If you are a more methodical trader, consider position or swing exchange markets. This way, you can spend significant time analysing the development of your stock spread.
With Whom Are You Trading?
You can enter the stock market as an individual or part of an organisation. If you are trading stocks by yourself, you will be doing most of the work, if not all.
However, you can share the workload with other members if you are part of a team.
As an individual stock trader, you must thoroughly research multiple stocks’ performance and forecasted returns. If you are unsure whether to invest more or sell part of your stocks, you can end up with a potential financial loss.
Still, individual trading comes with unique rewards. You will have complete control over your stock spread and receive all commissions from the stock sales. Your profit margins are also higher than in an organisation, but you must work more.
If you are still considering individual trading, seek advice from experienced stockbrokers. They can give you advice and tips, although some professionals require a fee.
Another option is to seek the use of a robo-advisor. This automated service platform can monitor your investments and track the algorithms of the various stocks in which you may be interested in investing.
How to Invest in Stocks: Steps to Get Started
Have you reviewed the basics of stock trading and investing and picked a broker with whom you’ll place your trades?
If you have or are about to do so, here are the tips to start investing in stocks:
Define Your Tolerance for Risk
How much risk, or the chance that you will lose money when investing, can you tolerate? Stocks have different categories, like large capitalisation stocks, aggressive growth stocks, value stocks, and small cap stocks.
Each of these categories has varying risk levels. After determining your risk tolerance, you can set your sights on the stocks that fit your risk appetite.
Decide on Your Investment Goals
Upon opening a brokerage account, the online broker will usually ask you about your investment goals and how much risk you are willing to take.
Suppose you are still starting your trading career. Your initial goal can be to increase the amount of money you invested in your account. If you’re an older trader or investor, your goal can be income generation and wealth protection.
Other investment goals include purchasing a house, opening a business, saving for school tuition, or funding your retirement.
Your goals can change over time, depending on your circumstances. Review these goals periodically to ensure you are still on track to achieving them.
Determine Your Investing Style
Some investors want to manage their investments actively. Others prefer to set those investments and leave them as is for some time.
You can manage your investment and portfolio independently if you are confident about your investing skills and knowledge.
If you are a beginner who wants to understand how investing can help achieve your goals, you should consult an experienced broker or financial advisor.
These professionals can help you make investment decisions and manage your portfolio.
You can also work with a robo-advisor, an automated, hands-off option that usually costs less than a financial advisor or broker. The robo-advisor program automatically invests for you once you’ve identified your goals, risk tolerance level, and other relevant details.
Choose Your Investment Account
You can create your investment account based on the following:
- Retirement plan at work: Your employer can offer you investment opportunities in various mutual funds, like stocks or bonds, and target-date funds through a retirement plan like a 401(k).
Your employer can also let you invest in the company’s stock.
Upon your enrollment, you set the contributions, which will automatically get deducted from your salary. These contributions are tax-deductible, so this plan can help maximise your investment dollars with little effort.
- A taxable or individual retirement account at a brokerage: You can open an individual retirement account (IRA) if you want to begin investing in stocks, even when you have a workplace plan.
You can also choose a regular, taxable brokerage account, and you’ll have several options for investment, including individual stocks, mutual funds, stock options, and ETFs (exchange-traded funds).
- A robo-advisor account: You can automatically create a stock portfolio based on your investment goals with this account type.
Learn to Diversify and Reduce Risk
Diversification lets you invest in various assets to reduce the risk associated with one investment’s performance. This concept can be challenging to achieve when you have a limited budget.
Suppose you have $1,000 and can afford to invest in only one or two firms. If these companies underperform, you risk a higher loss.
On the other hand, when you have $10,000 invested in five or six companies, the other firms can offset the losses of the underperforming ones.
If you are looking for diversified investment options, consider mutual funds and ETFs since these funds comprise many stocks and other investments.
Minimums to Open an Account
Many financial institutions require clients to place a minimum deposit to open an account. These institutions won’t approve your application unless you fund your account with a certain amount of money.
You can shop around for different brokers to find out their minimum deposits. Some firms don’t have any requirements, while others offer discounted fees.
The Costs to Invest in Stocks
Investing in stocks requires traders and investors to pay the following fees and other expenses:
Commissions and Fees
Brokers charge a commission fee each time you trade stocks, whether you make a buy or sell transaction. Some brokers don’t charge trade commissions but implement other fees instead.
These commissions and fees can add up depending on how frequently you trade. These expenses can affect your portfolio’s return and reduce the amount of money you can invest.
Mutual Fund Loads
Mutual funds have various fees, like the management expense ratio (MER). Mutual fund and ETF shareholders pay the MER to cover the fund’s expenses.
MER relies on a fund’s total assets under management and can range from 0.05% to 2% annually.
Mutual funds also have sales charges called loads. The two load types are:
- Front-end loads: Charge fees upon purchase of a mutual fund
- Back-end loads: Charge fees upon redemption of the fund
Check your broker’s list of no-load and no-transaction-fee funds to avoid these charges.
Online Brokers: What’s the Difference Between a Discount and a Full-Service Broker?
There are two categories of online brokers: full-service and discount.
Full-service brokers offer a wide range of traditional brokerage services, including:
- Financial advice for college planning
- Estate planning
- Retirement planning
- Planning for other life events
Full-service brokers charge higher than others but can provide these custom-tailored services. These charges can come from a percentage of your transactions, assets under management, or an annual membership fee.
Discount brokers offer tools to select investments and place orders. These brokers also offer a set-and-forget robo-advisory service.
Many brokers also provide educational materials on their sites and mobile apps to help beginner investors.
What Are the Risks of Investing?
Investing involves committing financial resources to achieve a future financial goal. Certain asset classes and investment products have varying risk levels and are inherently riskier than others.
For example, if you invest in an oil company, events like oil spills and other significant environmental issues can adversely impact your chosen firm’s stock prices.
Benefits and Challenges of Stock Trading
You don’t need a huge capital to start trading or investing in stocks. Nowadays, you can start trading with around $500, depending on the broker, and still make substantial profits.
Stocks usually get bought and sold in rounded amounts. For example, the company can sell its stock in quantities of 10, 100, or 1,000 shares at five dollars a share. This method allows shareholders to keep track of their assets neatly.
Rounded investments also help make inflation projections easier to read. So, if there’s a 2% increase in inflation in a year, the stock’s value should be worth 2% more.
However, because an increase or decrease in inflation can determine all of the stocks’ value, inflation can be challenging for traders and investors.
For example, given the inflation, you can sell a stock at its new projected value. But since the inflation changes apply to all stocks, you may pay more if you sell the stock now than if you did a few months before.
Another benefit of stock trading is that it has become more accessible. Online brokers allow you to buy and sell stocks more easily than ever.
Additionally, you can also trade anywhere using a mobile device with stable internet.
How to Become a Stock Trader
To get involved in stock trading today, you can access an online trading platform and open an account.
A trading platform is a financial intermediary you can access online or download to your computer or mobile device, like Android or Apple iOS smartphones.
Numerous trading platforms cater to different trading or investment needs and experience levels. How much money you want to invest and how many stocks you want to buy depends on each platform and investment goal.
Beginners can start with $500 to $1,000 as a decent initial amount.
If you are new to stock trading, take the time to familiarise yourself with stock trading terminologies and learn more about the technical analysis tools.
Many trading platforms allow users to open demo accounts to help new stock traders test how their investments will perform without losing money and gain essential stock trading experience.
Demo accounts also help you create strategies that work for your investment goals. These strategies are also instrumental in risk management.
Considerations for Choosing a Trading Platform
To keep your investment relatively secure, you should open an account with well-known and regulated trading platforms.
You can still explore the market to determine what brokers will work with your trading preferences, but keep in mind the following elements:
- Use a tier-1 regulated platform since these brokers operate globally and have an internationally recognised status.
- Ensure your chosen platform provides good customer support and fast execution speed.
- Check the technical tools available in your chosen trading platform. Many platforms provide margins and spread to aid your trades and offer comprehensive educational resources.
- Consider finding platforms offering low commissions and fees favouring your investment goals.
What Is Forex Trading for Beginners?
The foreign exchange (forex or FX) market is an international marketplace where traders exchange national currencies.
How to Forex Trade for Beginners
Now that you’ve learned about day trading and stock investing, what about forex?
This beginner’s guide discusses forex trading, starting with the relevant terminologies, so you’ll understand the basics of trading forex.
Trading Terminology: Forex Trading Notes for Beginners
When trading forex, familiarise yourself with the following terms since you’ll encounter them frequently as you continue trading:
This term describes the stock market when the stock prices are falling or moving in a downward trend. A stock price that falls fast and deep is considered bearish.
This metric indicates the relationship between a stock’s price movement and the whole market’s performance. So if a stock’s beta measures 2.0, this stock moves by two points every time the market moves by one point.
The bid price is the amount traders will pay per share. The bid is the opposite of the ask price, which is the amount for which sellers are willing to sell their shares.
Blue Chip Stocks
Blue chips are stocks in large, industry-leading companies. Many traders prefer blue chip stocks because most of these companies have a reputation for paying stable dividends and demonstrating sound long-term fiscal management.
Some people believe the “blue chip” expression comes from the blue chips used in casinos because these chips have the highest value.
Brokers are individuals or organisations that help facilitate the buying and selling of financial instruments, usually through a trading platform.
The opposite of the bear market is the bull market, wherein the stock market experiences a period of increasing stock prices.
The close is the time trading stops and an exchange closes. For example, the regular trading hours of the New York Stock Exchange (NYSE) start at 9:00 AM and close at 4:30 PM Eastern time.
This activity occurs when traders buy and sell within a day. If someone day trades, they can also make long-term investments.
A dividend is a proportion of the company’s earnings paid to shareholders. Dividends get paid annually or quarterly, but not all companies pay dividends to their shareholders.
An exchange is where trades take place. The NASDAQ (National Association of Securities Dealers Automated Quotations) and the New York Stock Exchange (NYSE) are well-known stock exchanges.
Leverage is the capital a forex broker provides to increase the volume of trades customers can place.
Suppose your broker offers you a 1:10 leverage rate, and you have $1,000 in your trading account. Leverage lets you trade a currency pair at a $10,000 position size ($1,000 x 10 = $10,000).
If your trade is successful, leverage maximises your profit by a factor of 10. However, remember that your losses also multiply this way, so be mindful of using leverage.
Margin is the money retained in your trading account when opening a trade.
The average retail forex trader often has insufficient margin to trade at a high enough volume to make a substantial profit. To address this challenge, many forex brokers offer leverage to their clients.
A pip is the base unit in a currency pair’s price or 0.0001 of the quoted price. If the USD-EUR pair’s bid price goes from 1.0111 to 1.0112, the difference represents one pip.
Spot forex trading involves buying and selling real currency. When you buy a specific amount of U.S. dollars in exchange for euros, and the dollar’s value increases later, you can exchange your euros for dollars again.
This trade lets you earn more money than you spend on the purchase.
The spread is the difference between a currency pair’s purchase and sale prices. Most popular currency pairs usually have a low spread, often even less than a pip.
On the other hand, pairs that don’t trade as often tend to have higher spreads.
How to Trade Forex for Beginners: Making Trades
Before placing a trade, you must decide what kind of trade to make (like going long or short), how wide the spread is, and how much it’ll cost. Let’s explore these aspects below:
Price and Quote
When trading forex, you will see the bid and ask prices for each currency.
One thing you should understand when learning forex from scratch is that you can trade long and short, but you must be aware of the risks associated with this product.
A long trade is when you buy a currency and expect its value to increase so you can profit from the difference between the currency’s purchase and sale price.
In a short trade, you sell a currency expecting it to decrease in value so you can repurchase it at a lower price and then profit from the difference.
How to Read Forex Charts for Beginners
When analysing the exchange rates, there are three options to view live forex charts available to traders: line charts, bar charts, or candlestick charts.
A line chart shows the closing prices of each trading day within a specific time frame and connects these prices with a line. Traders mainly use line charts to identify trends in the big picture.
However, for other purposes, the other charts are more suitable.
OHLC Bar Charts
An OHLC (open, high, low, close) bar chart shows traders a bar for each period viewed. Each vertical bar represents a day’s worth of trading and provides more information than a line chart.
The dash on the bar’s left side shows the stock’s opening price, while the dash on the right is for the closing.
The bar’s highest point is the maximum price that the stock traded within the selected period. Meanwhile, the bar’s lowest point is the lowest traded price in that period.
Green bars, also called buyer bars, signify that the stock’s closing price is above the opening. On the other hand, red bars are called seller bars, wherein the closing price is less than the opening.
Candlestick charts are similar to OHLC bars and feature the same open, high, low, and close values.
The difference is that in a candlestick chart’s bar, the opening and closing price values form a box that looks similar to a candlestick.
Many traders consider candlestick charts visually appealing when viewing live forex movements. These charts are also popular as they provide traders with various price action (price movement over time) patterns.
Learn to Trade Forex for Beginners: Forex Trading Systems
Investors, corporations, banks, and speculators have traded in forex markets for decades.
This situation means there is already a wide range of tried-and-tested forex trading strategies you can choose from, including:
- Currency scalping: Scalping consists of buying and selling currency pairs in short periods, usually within a few seconds or minutes. This strategy involves making small profits in large numbers, hoping those profits will accumulate.
- Intraday trades: Forex intraday trading can be for beginners who prefer a more conservative approach. This method focuses on one- or four-hour price trends on each forex market’s main sessions.
- Swing trading: This approach focuses on more significant price movements, unlike scalping or intraday trading, meaning traders can keep a trade position open for days or weeks.
Taurex can provide you with a 1-to-1,000 leverage ratio. We offer forex trading opportunities for beginners and demanding traders, so there’s a chance to profit from almost every major currency.
Is Forex Good for Beginners? What Risks Should Every Beginner Be Aware of?
Risks are inherent in any trade. If you are a beginner forex trader, you must keep note of the following risks:
- Leverage risk: Higher leverage can lead to considerable benefits but also cause significant losses if the price movement goes the other way.
- Interest rate risk: When a country experiences an influx of investments in the money markets, interest rates can rise and, in turn, strengthen the currency and increase potential returns.
However, if interest rates fall, the currency can weaken, resulting in investors withdrawing their investments.
- Transaction risk: This risk primarily occurs due to the time differences between countries. There is a chance that, within 24 hours, exchange rates will change before a trade settles. The greater the time gap between entering and closing a contract, the higher the transaction risk.
3 Forex Trading Strategies for Beginners
Below are three strategies beginners can use when trading forex:
The breakout is a long-term strategy that uses breaks as trading signals. It occurs when a currency’s value moves to new highs or lows.
A new trend typically happens when a breakout ensues. Thus, you can consider breaks as possible signs of an upcoming trend.
Not all breakouts create new trends, so use a stop-loss measure to prevent yourself from losing money if the market goes the other way.
Moving Average Cross
The simple moving average (SMA) is another forex strategy that uses historical price data and moves slower than the current market price.
Short-term moving averages that move above the long-term ones indicate that the latest prices are higher than the oldest ones.
This movement suggests an upward trend you can use as a buy signal.
Alternatively, a short-term moving average that moves below the long-term one can indicate a downward trend and suggest a signal to sell.
The Donchian channels can suggest buying or selling signals when a break occurs within a particular period. The indicator for such signals forms by taking the highest and lowest prices within a user-defined period.
For example, a break in the Donchian channel within a 20-day period can indicate one of two things:
- Buy if the market price moves above the highest high of the last 20 periods.
- Sell if the market price moves under the lowest low of the last 20 periods.
10 Forex Trading Tips to Help Beginners Earn
Beginner traders who are serious about earning a profit in Forex trading should consider the following tips:
Know Your Markets
Education and knowledge about the Forex market are among the most effective ways to prevent trading losses.
By educating yourself on currency pairs and what affects their prices before risking your funds, you can keep yourself from making simple mistakes that can cost more than what you can afford to lose.
Stick to Your Plan
Following a trading plan is essential to minimise or avoid losses. When drawing up a trading strategy, many traders include profit goals, evaluation criteria, and risk tolerance levels.
Once you’ve formulated a plan, ensure that each trade you place doesn’t fall outside your plan’s parameters.
If your broker provides a free demo account, use it to put your plan into practice. You can test your trading plan and see what it’s like trading currency pairs without any risk.
Forecast the Market Conditions
Traders who analyse news and financial or political data to predict market movements are called fundamental traders.
Meanwhile, those who use technical analysis techniques like moving averages, triangles, Fibonacci retracements, and other indicators to predict prices are called technical traders.
Many traders are a mix of both types. Regardless of your preferred style, the tools available on your trading platform can help you predict price movements more accurately.
Know Your Limits
Knowing when to let go of a losing position or set appropriate stop-loss levels and remembering not to risk more than what you’re willing to lose are essential to minimise risk.
Understanding your limits also helps you avoid losing more money than you can afford.
Know When to Stop
In many cases, you do not have enough time to sit and watch market movements every minute of the day.
Fortunately, stop and limit orders are some ways to manage your risk and protect potential profits, even without looking at the charts all the time.
You can also use trailing stops that trail your position from a specified distance while the market moves to help preserve your profits if the market reverses.
Leave Your Emotions Out of the Door
Do not let your emotions cause your plan for successful trading to go awry. Traders who encounter a losing trade and try to go all-in to recover their losses can end up with more losses. You should stick with your plan and get back your losses a little at a time.
Stay Slow and Steady
Most, if not all, traders have lost money. However, if you keep a consistent and positive plan, no matter how slow, you still have a better chance of success.
While being educated and having a sound trading plan are commendable, the real test requires patience and the discipline to stick to your plan.
Don’t Fear Growth
It is fine to be consistent and stick to a tried-and-tested strategy, but you do not need to be afraid of rethinking your plan if things do not work out well.
As you continue trading, your plans change, and your experience grows to reflect your goals.
Choose the Right Broker for You
The right trading partner you choose can help you achieve your financial goals. Sometimes, the correct pricing, execution, and customer service quality can make a difference in your trading experience.
Other Financial Markets New Traders Must Know
Aside from shares and forex, other financial markets new traders can enter include indices, commodities, bonds, and cryptocurrencies.
What Is Index Trading?
Indices consist of publicly traded stocks grouped into one entity that you can trade as a singular unit. In other words, when you buy and sell on the index, you’re trading on all its stocks simultaneously.
Index stocks typically have something in common that puts them together in one group.
For instance, the Standard and Poor’s 500 (S&P 500) index comprises 500 of the biggest companies by market capitalisation listed in the United States.
Meanwhile, the Financial Times Stock Exchange 100 (FTSE 100) consists of the United Kingdom’s 100 biggest stocks.
What Is Commodities Trading?
When you trade commodities, you speculate on the prices of tangible natural resources.
When you take a position on the price of gold, crude oil, natural gas, or sugar, you deal with commodities.
Commodities come in two types:
- Hard commodities: Mined resources like oil, gases, precious metals, and diamonds
- Soft commodities: Animal and plant resources like cattle, grains, coffee beans, and sugar cane
Some traders and investors use commodities like gold as a safe haven during challenging financial situations to serve as a hedge against events like inflation.
Deciding What and When to Buy
Traders should consider the following when deciding what assets to buy and when to do so:
What to Buy
Day traders profit by leveraging significant amounts of capital and exploiting minute price movements in individual assets like stocks, futures, options, and currencies.
When deciding what to asset buy, a day trader usually looks for three things:
- Liquidity: A liquid security is one that you can buy and sell quickly and at a good price.
- Volatility: Higher volatility means higher profit or loss potential.
- Trading volume: A high trading volume indicates a high interest in a stock and can signal a price jump.
When to Buy
After identifying the stocks or other instruments you want to trade, you must figure out the entry points for your trades by defining the specific conditions you need to enter a position.
For example, when a stock’s price undergoes a breakout above its upper trendline during the first two hours of the trading day, you place an order to buy that stock.
Deciding When to Sell
If you reach a winning position and decide that you want to exit or sell it, you have multiple ways to do so.
Profit targets are one exit method that involves taking a profit at a predetermined price level. Some profit target strategies are:
- Scalping: Selling immediately after a trade becomes profitable.
- Fading: Shorting or selling stocks after they rapidly move upwards, based on the hypothesis that the stocks are overbought.
- Momentum: Trading based on news releases or strong trending moves supported by high volume.
- Daily pivot: Buying at the day’s low and selling at the day’s high.
Risks and Benefits Beginner Traders Should Know
You must evaluate the risks and rewards of any trade before opening a position. Here are some risks and benefits when trading:
- Short selling: Going short allows you to double your trading opportunities because you can profit from downtrend markets as much as from uptrend ones. However, short selling can put your position at a higher risk of losses if the market moves unpredictably.
Additionally, there is no limit to how much a market’s price can increase, so your potential losses are unlimited.
- Volatility: Traders with a good trading strategy can find profitable opportunities in volatile markets that move quickly and unexpectedly. However, volatility can also give as much risk, especially when the market moves against the trader’s favour.
- Margin call: Many brokers require you to maintain a margin, or a certain amount of money left in your account, to keep your trades open. The broker can close your positions if your account balance isn’t enough to cover the margin requirements.
Why Trade With Us?
Taurex offers trading in several markets like forex, commodities, indices, cryptocurrencies, and metals. So you have a wide selection of market choices and more opportunities to profit.
Taurex also lets you access multiple cutting-edge platforms like MetaTrader 4, MetaTrader 5, and Taurex App. We strive to go above and beyond to provide security and peace of mind by ensuring your money is safe and kept in segregated accounts in top-tier banks.
- How do I get into trading?
To get into trading in a safe and profitable manner, take time to learn about trade as much as you can, find a trading platform you can trust, and practise to get your strategy right. Afterwards, you can open a live account and start trading.
- How do I learn basic trading?
Some brokers and related institutions provide basic training for beginners who want to learn to trade and invest. These brokers also offer educational material for new traders who wish to study independently.
- How much do online brokers cost?
Taurex does not charge deposit fees. Hence, you can deposit without worrying about hidden costs.
If you’re interested in trading, Taurex offers a standard account with zero commissions and as low as 1.6 for spreads for a $100 minimum deposit.
- What are the risks of trading?
One significant risk of trading is that your profit and loss potential isn’t capped at the capital you have spent, especially when trading on leverage (placing a margin or small deposit to open a larger position).
If you are short selling (borrowing security like stocks or currency to sell and buying it when the price falls), you can get high exposure to losses if the market moves the other way.
- Can I practise trading?
Some online brokers allow you to open a demo account wherein you can practise trading and test your strategies without any risk before you start using real money.
- Where can I learn more about the markets to trade?
Taurex provides educational resources for beginner traders and even experienced investors who want to refresh their knowledge to stay updated with the latest expert analysis and news.
- How do commissions and fees work?
Brokers usually charge a commission fee for each trade. Depending on the broker, these fees can go up to around $10 per trade.
Due to these costs, investors often consider limiting their number of trades to avoid spending too much on fees.
- Is day trading suitable for beginners?
Trading platform data analysis shows that most day traders end up losing money. Such results suggest that beginners shouldn’t head straight into day trading unless they get enough experience.
Instead, beginner traders should trade with a demo account to learn how day trading goes so they can test strategies before investing their capital.
- What is more appropriate for day trading, fundamental or technical analysis?
Technical analysis involves identifying short-term trading patterns and trends, which are usually essential for day trading.
On the other hand, fundamental analysis focuses on valuation that often lasts for months or years, so this method is more suited for long-term investing.
Based on these characteristics, you can consider technical analysis better suited for day trading.
Still, traders should monitor market reaction to fundamental data since such reactions can also indicate trading opportunities you can take advantage of using technical analysis.
- Why is it difficult to make money consistently from day trading?
What makes day trading challenging is combining your knowledge and experience with discipline, trading insight, and mental fortitude to make money consistently.
For example, implementing strategies like stop-loss or limit orders is not always easy for beginners. Furthermore, maintaining discipline in the face of significant losses or market volatility is challenging.
Additionally, day traders often face hundreds or thousands of other market experts who have access to high-tech tools, experience, expertise, and large budgets.
- Should a day trading position be held overnight?
Some day traders can hold a trading position overnight if they believe doing so will help increase profits on a winning trade or reduce losses on an unfavourable trade.
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